FIN 305 Lecture 62: FIN305 Class 62

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skykangaroo617

21 May 2019

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Suppose microsoft issues a 7% coupon bond with semiannual payments, a maturity of 20 years and a face value of ,000. Assume the appropriate market rate of return is 8%: . 42, . 82, . 04, . 40. For semiannual, coupon interest payments, maturity, and required rate of return each must be divided by 2. Consider the example above (semiannual coupon bond with 20 years to maturity, 7% annual coupon rate. You would have to buy at a discount so that your roi would yield 10% or more. The rate of return a bondholder will receive if the bond is held to maturity (the equivalent to the expected rate of return) The price of the bond is less than the par value because the coupon rate is below the market rate on the entire investment. The price of the bond is more than the par value because the coupon rate is above the market rate on the whole investment (yield to maturity).

Related Questions

Question 2

Last year, you earned a rate of return of 8.16 percent on your bond investments. During that time, the inflation rate was 2.89 percent. What was your real rate of return?

Use the exact relationship between real and nominal rates. Enter answer in percents, accurate to two decimal places.

Question 3

GDebi, Inc. plans to issue 6.1 percent coupon bonds, with annual coupon frequency, 17 years to maturity and $1000 face value. If the prevailing market yield on bonds of similar riskiness and maturity is 8.2 percent, what would be the market price of GDebi's bonds?

Question 4

HexChat, Inc. has issued 16 year bonds 5 years ago. The bonds pay semiannual coupons, with a coupon rate of 3.3 percent, and $1000 face value. If your required return on this investment is 7.1 percent APR, how much would you be willing to pay for this bond?

Assume that you wish to purchase a bond with a 30-year maturity, an annual coupon rate of 10 percent, a face value of $1,000, and semiannual interest payments. If you require a 9 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

amethystyellowjacket837

A private, for profit clinic has a bond issue outstanding with a coupon rate of 8 percent and five years remaining until maturity. The par value of the bond is $1000, and the bond pays interest annually.

What is the current value of the bond if present market conditions justify a 16% required rate of return?

Now suppose the centerâs five-year bond had semiannual coupon payments. What is its current value? (assume an 8% semiannual required rate of return. But the actual rate would be slightly less than 8% because a semiannual coupon bond is slightly less risky than an annual coupon bond).

Now assume that the centerâs bond had a semiannual coupon but 30 years remaining to maturity. What is the current value under these conditions? (assume an 8% semiannual required rate of return. But the actual rate would be slightly greater than 7% because of increased price risk).

Please show all work. and formula used.

redgrasshopper433

FIN 305 Lecture 62: FIN305 Class 62

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